Energy looks to help out in steel’s hoped-for rebound

The fate of domestic hot-rolled coil is closely aligned to crude oil prices, according to industry analysts, and in 2016 there was a recovery in both markets. This was a welcome change. Steel production, sales and prices did not have a good run of it for nearly all of 2014-2015, as the sector was feeling woes all along the supply chain.

Now a variety of sectors in the energy industry are all showing optimistic outlooks for near-term growth, providing opportunities that could help power steel producers. As a story in this issue demonstrates, the U.S. Energy Information Administrations short-term energy outlook released in early February forecasts 2017 U.S. crude oil production to grow to 9.0 million barrels per day, up from an estimated 8.9 million in 2016 and reaching 9.5 million barrels per day in 2018.

For providers of oil country tubular goods (OCTG) and line pipe, indicators are moving solidly in the right direction for the first time since the oil price crash of 2014-15, states another story is this issue. Prices for OCTG and line pipe gained momentum in January in particular, due to the rising number of active rigs and doubts about import supply, the story says.

However, the most recent increase in coil prices, which started in late 2016, shows that steel prices are now getting ahead of themselves by outstripping crude oil prices significantly, a Metal Bulletin Research (MBR) analyst said (AMM, Feb. 3, 2017).

This is a serious issue within the U.S. steel industry, MBR principal consultant Amy Bennett said this winter. When steel mills have the opportunity to increase prices, they go for it just a little too much and end up sabotaging themselves. We expect that prices will overshoot sustainable levels once again in the second quarter (of 2017) onwards.

Still, Bennett predicted that hot-rolled coil prices will average $610 per ton ($30.50 per hundredweight) in 2017, compared to an average of $522 per ton ($26.10 per cwt) in 2016.

This affects steelmakers, of course, but it also has ramifications for distributors, who also have been waiting out the slow times of recent years and months. On this front, too, there is a changing attitude. Indeed, as a story in this issue on distributor trends notes, last year began on a very rough note for the manufacturing industry amid plummeting oil and gas prices, followed by economic uncertainty from the political primary and election seasons, according to MSCI president and chief executive officer M. Robert Weidner III.

But, Weidner said, Im more optimistic today than I have been in a long time. The mood of the industrial heartland is clearly much more positive, and the voices of many are being heard.

Early signs have been encouraging to distributors as January experienced an increase in shipments due to a surge in demand for products.